Holiday Hiring Plans on Hold for Many Small Businesses

Jessica Rao|Special to CNBC.com

Tuesday, 1 Nov 2011 | 2:21 PM ETCNBC.com

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For small business owners, at this time of year thoughts usually turn to hiring. Whether it's part-time help or paying the regular workers overtime, it's a holiday tradition to put that "Help Wanted" sign in the window.

Michele Constantini | PhotoAlto Agency RF Collections | Getty Images

Shopper with shopping bags

But this year, concerns about depressed consumer sentiment are translating into weak hiring trends.

To bring on workers, there has to be an expectation that business is going to be good. But companies are worried that customers are still holding onto their cash as consumer confidence remains low, says John Challenger, CEO of Challenger, Gray and Christmas, an outplacement firm in Chicago. “Right now everybody’s kind of keeping their powder dry, being cautious, and that is not the kind of environment that leads to strong job growth,” says Challenger.

Bottom line: Don’t count on the little guy to hire a lot of seasonal help between now and the end of the 2011.

For starters, the consumer confidence index fell to 39.8 in October. This is down from the previous nine-month average of 59.6, and lower than the 49.9 reading during the same month last year. If consumers don’t spend, Challenger expects retail employment will be lower than last year, when, according to the Bureau of Labor Statistics, in the three months ending December 2010, the net change in retail jobs was approximately 630,000. This was up from 495,000 for the same period in 2009, but off from 746,800 in 2006.

How important is small business to the indicators for holiday hiring? According to the Small Business Administration’s Office of Advocacy, small businesses employ half of U.S. workers. They also pay 43 percent of total U.S. private payroll, and have generated 65 percent of new jobs over the past 17 years. For holiday hiring to show a bump, small business must be a part of it.

“Certainty and growth have to be there,” says Chason Hecht, President of Retensa, a New York City-based firm specializing in employee retention, “and right now, neither of those are very strong.”

CBIZ, a company in Roanoke, Va., that tracks hiring, found that in September, small business employment shrank by 0.81 percent. The CBIZ Small Business Employment Index, a barometer for hiring trends among companies with 300 or fewer employees, showed that for the third month in a row, hiring in the small business sector trended slightly downward.

Philip Noftsinger, business unit president at CBIZ Payroll Services says, “It’s really about demand. They (small businesses) are going to wait until the last possible minute to invest in additional workers for the holiday season.” If economic news improves, and consumers come out, there is the possibility of a late season employment spike.

According to the National Federation of Independent Business, small business optimism saw a modest gain of 0.8 points in September, ending a six-month decline. While that number is up from recent months, says Holly Wade, senior policy analyst at the NFIB, the figure was still outweighed by those expecting sales to decline.

"They (small businesses) are going to wait until the last possible minute to invest in additional workers for the holiday season."-Business unit president, CBIZ Payroll Services, Philip Noftsinger,

Still, the good news is that 7 percent more small business owners say they are planning to hire rather than cut employees in the fourth quarter compared with the same time last year. “It might be better than last year, and even better than it was two years ago, but we are not seeing the dramatic jump that we were hoping for,” says Wade. The last time this number was healthy was when it was 14 percent in 2007.

So, while the numbers are trending up, it’s a slow climb. One reason, according to the 350,000-member NFIB, whose largest segments are in retail, construction and services: poor sales have been its members’ number one problem the past three years. “They are certainly not going to hire workers just for the holiday season if they don’t see the sales coming in the front door,” Wade says. She points out that any increases in the cost of running a business — higher taxes, more regulation, or increases in fuel prices — will affect the ability of an owner to pay for an extra employee.

But there are some indications that Santa will win the stare down with the conservative consumer. Commerce department numbers released at the end of October showed spending in the third quarter was the highest it had been all year. It’s been three long years of frugality for many shoppers, and, whether they need to replace a worn out appliance or just want to freshen their wardrobe, Noftsinger notes, “Americans like to spend money, and they have been waiting for an opportunity to do so.”